Democrats Set to Offer Loans for Carmakers

From left, Richard Wagoner, chief executive of General Motors, Robert L. Nardelli, chief executive of Chrysler, Alan R. Mulally, chief executive of Ford, and Ron Gettelfinger, head of the United Automobile Workers, during a House hearing on Friday.Credit
Stephen Crowley/The New York Times

WASHINGTON — Faced with staggering new unemployment figures, Democratic Congressional leaders said on Friday that they were ready to provide a short-term rescue plan for American automakers, and that they expected to hold a vote on the legislation in a special session next week.

Seeking to end a weeks-long stalemate between the Bush administration and House Speaker Nancy Pelosi, senior Congressional aides said that the money would most likely come from $25 billion in federally subsidized loans intended for developing fuel-efficient cars.

By breaking that impasse, the lawmakers could also clear the way for the Treasury secretary, Henry M. Paulson Jr., to request the remaining $350 billion of the financial industry bailout fund knowing he will not get bogged down in a fight over aiding Detroit.

Democrats are hoping Mr. Paulson will use some of that money to help individual homeowners avoid foreclosure.

"We have had constructive discussions with members of Congress from both houses, and both sides of the aisle," President Bush's spokeswoman, Dana Perino, said in a statement released Saturday. "We hope to continue to make progress toward assistance for the automakers based on important principles — that taxpayer assistance only be considered for companies willing to make the difficult decisions across the scope of their businesses to be viable and competitive in the future; that taxpayer assistance should come from funds already appropriated in the program specifically intended to assist automakers — the auto loan program; and that assistance is accompanied by very strong taxpayer protections. Taxpayers should not be asked to finance assistance for automakers without a strong likelihood that they will be paid back."

The short-term plan is intended to help the automakers survive until the new administration takes over in January and can craft a longer-term solution to the industry’s troubles.

President-elect Barack Obama and his transition team have been working with Congressional leaders on both counts. Ms. Pelosi spoke to Mr. Obama on Thursday, and to Rahm Emanuel, Mr. Obama’s chief of staff, twice on Friday.

Ms. Pelosi also spoke by phone on Friday with Joshua B. Bolten, President Bush’s chief of staff, and the White House, too, seemed ready to reach a deal.

“We’re continuing to talk to both parties and both houses of Congress, and we hope to make more progress this weekend,” said Tony Fratto, the White House deputy press secretary.

Details of the auto companies’ rescue package were not immediately available, but senior Congressional aides said that it would include billions of dollars in short-term loans to keep the automakers afloat at least until Mr. Obama takes office.

The auto companies will have to submit to strict government oversight to make sure that the bailout funds are used to carry out the reorganization plans they delivered to Congress this week. The auto company chiefs testified this week that they were willing to accept such regulation.

Ms. Pelosi had resisted using money from the fuel-efficiency program, which was approved as part of an energy bill last year, and Democrats had repeatedly called on the Bush administration or the Federal Reserve to act unilaterally, using existing authority, to aid the auto companies.

On Friday, Ms. Pelosi said she would allow that money to be used provided “there is a guarantee that those funds will be replenished in a matter of weeks” and there was no delay in working toward greater fuel efficiency.

Word of a breakthrough came as Congress wrapped up two days of hearings at which lawmakers grilled the chief executives of the companies — Chrysler, the Ford Motor Company and General Motors — and experts warned that G.M. could collapse by the end of this month.

The automakers seemed tentatively heartened by the progress at the Capitol. “We’re encouraged by Speaker Pelosi’s intent to move forward quickly to resolve a crisis that can only grow more serious without action,” said Greg Martin, a spokesman.

The proposed deal could still fall apart for several reasons.

It was unclear Friday how much support would come from Republicans, particularly in the Senate where procedural hurdles are high. Crucial details remain to be worked out, including how to restore the money to the fuel-efficiency program.

Under federal budget rules, those loan guarantees are now likely worth less than $25 billion because of the deteriorating condition of the auto companies. Congress appropriated $7 billion this fall to secure those loans. But now that the automakers’ finances have worsened, the default risk has increased substantially.

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Congressional aides said that staff would work through the weekend to determine how much money would be available to aid the auto companies under the current conditions.

Under the financial system rescue law approved by Congress in October, the Treasury secretary must request the second $350 billion, and Congress then has 15 days to disapprove the disbursement. Congressional leaders, upset over Mr. Paulson’s management of the bailout program, have warned him that if he wants the money, he must ask for it by the end of next week.

Until the breakthrough Friday evening, it had appeared unlikely that Mr. Paulson would be able to persuade Congress to release the funds. Of the first $350 billion portion of the rescue fund, only $15 billion remains uncommitted.

It was the Labor Department’s report of 533,000 jobs lost in November that seemed to halt the hand-wringing on Capitol Hill over what to do about the auto companies, and prompted Democratic leaders to announce that they would draw up legislation for votes next week.

“Today’s announcement of major job losses and findings from Congressional hearings from the last two days make it clear that Congress must work on a bipartisan basis to provide short-term and limited assistance to the automobile industry while it undertakes major restructuring,” Ms. Pelosi said in a statement.

She added: “Congress will insist that any legislation include rigorous and ongoing oversight to guarantee that taxpayers are protected and that resources are directed to ensure the long-term viability and competitiveness of the American automobile industry.”

The Senate banking committee, led by Christopher J. Dodd, Democrat of Connecticut, began drafting legislation on Friday and staff were expected to work through the weekend. Mr. Dodd and other Democrats have proposed a strong oversight board or trustee to monitor any aid to the automakers.

“We aim to have votes next week on a responsible plan to help the millions of Americans who rely on a healthy auto industry for their livelihoods,” the Senate majority leader, Harry Reid of Nevada, said in a statement on Friday evening.

“We will need support and cooperation from Republicans to determine when that vote happens and whether it will succeed,” Mr. Reid said.

The Republican leader, Senator Mitch McConnell of Kentucky, said Friday he would have no comment on the Democratic proposal until after the details are released.

Some conservative House Republicans have called for allowing one or more of the auto companies to enter bankruptcy.

“It’s fair to say the jobs report, the disastrous jobs report, has heightened the interest to do something,” said Representative Barney Frank, Democrat of Massachusetts, after leading a hearing on Friday on the auto companies’ request for aid.

A compromise on how to help the troubled automakers had proved elusive since G.M., Ford and Chrysler came to Washington last month to plea for aid.

The hearings in mid-November were disastrous for the Big Three, as their chiefs were criticized for flying in on private jets and failing to bring plans to make their struggling companies viable for the long term.

The tone was noticeably different at this week’s hearings.

G.M. is seeking $18 billion in loans, but says it needs $4 billion immediately to survive past the year. Chrysler, which is also running out of cash, wants $7 billion. Ford, the healthiest of the three, is asking for a $9 billion line of credit.

A version of this article appears in print on , on Page A1 of the New York edition with the headline: Democrats Set To Offer Loans For Carmakers. Order Reprints|Today's Paper|Subscribe